How to calculate interest on post-5 December 2007 bills in Legal Profession Act, 2004 (Vic.) matters

What follows assumes that you have not made any special agreement in a costs agreement, and so the default position applies. It is truly an idiot’s guide because (i) I have great sympathy for people who have difficulties with numbers, and (ii) I well remember how grateful I was when a partner of Middletons, Mark Howard, showed me as an articled clerk how to calculate penalty interest.

1. Check that the Legal Profession Act, 2004 applies, i.e. that you first received instructions before 12 December 2005 in relation to the matter in respect of which the bill is given, that the new s. 3.4.21 applies, i.e. that you gave the bill after 7 November 2007, and that the bill complies with s. 3.4.21(3) which says ‘A law practice must not charge interest … on unpaid legal costs unless the bill for those costs contains a statement that interest is payable if the costs are not paid and of the rate of interest’.

2. Ascertain the date the bill was ‘given’. See ss. 3.4.34(4) and 7.2.3 of the Legal Profession Act, 2004. In sorting out what those two sections and s. 49 of the Interpretation of Legislation Act, 1984 mean in combination, it might be best conservatively to assume until the provisions are interpreted by the courts, if you have the luxury of forethought, that a bill may only be given to companies and individuals alike:

  • personally (including by courier);
  • personally to an agent with the addressee’s authority to accept service of legal process (including by courier);
  • by post (which I doubt includes document exchanges, like Ausdoc’s DX service) to the addressee’s or such an agent’s usual or last known business or residential address, or agreed address for service;
  • by leaving it with someone apparently at least 16 years old apparently employed or residing at such an address.

Where a bill is posted, it must be taken to have been ‘given’ 2 business days after posting: s. 7.2.4(b). So, if posted on Monday, it is ‘given’ on Wednesday. If on Friday, Tuesday. (But see this post on how VCAT’s Legal Practice List and its predecessors interpret this provision.)

3. Add 30 days. Legal counting works like this. 7 days after Monday 1 January 2000 is Monday 8 January 2000. So to get to 30 days from today, go to today week 4 times, and then go forward 2 days.

4. Count the days which have elapsed since (or to the date of the hearing, if you are doing your calculation in anticipation of a hearing). Use this time calculator if you like.

5. Ascertain from this page the cash rate on the date the bill was ‘issued’ (this might mean the date it was signed, the date it was posted, or the date it was ‘given’ — I’m not sure). Then add 2%.

6. Do your sums:

  • Divide the answer to step 3 by 365.
  • Then multiply the result by the cash rate plus 2% (e.g. x 8.75) and divide the answer by 100 (move the decimal point two places to the left). Alternatively, multiply by 0.0875 (i.e. 8.75 divided by 100 to take account of the fact that it’s 8.75 per cent).
  • Then multiply the result by the amount outstanding.

I never thought too much about this before, but this year is a leap year. Does anyone know whether the calculation must change this year? Does it depend on whether the period over which interest is calculated includes February 29th or not?

See also:

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